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Financial Ratio Analysis

Victoria Clark, Robert Garcon, Phillip Johnson, Roberta Payne, Quinton Thurmon

FIN 370

February 27, 2017

Kristopher Karazissis
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Financial Ratio Analysis

Within any company financial analysis is essential. It tells you so much about a company.

Debit Ratio is an account of all debts of all maturities within a company to all its creditors (Ross,

Westerfield, & Jordan, 2016). Looking over the previous two years, PepsiCo Inc. ratio debt

increased from 3.33% in 2016 from 2.79% in 2015. Debt to equity = Total debt Total PepsiCo

shareholders' equity = 36,945 11,095 = 3.33. After reviewing PepsiCo Inc. short- term and long

term obligations from 2015 and 2016 had deteriorated within the two years. By the end of 2016,

PepsiCo Inc. debt obligation was $38,000 million dollars.

Times Interest Earned is another common measure of long-term solvency (Ross,

Westerfield, & Jordan, 2016). The higher the ratio, the more cushion PepsiCo Inc. will have to

pay off their interest obligations. The ratio is calculated by EBIT divided by the interest

payments. The earnings before interest and tax had decreased from 7.37% in 2016 from 8.67 in

2015. Interest coverage = EBIT Interest expense = 9,895 1,342 = 7.37.

By the end of 2016 PepsiCo. Inc. competitor Coca-Cola Co. was at $47,224 million

dollars. Just looking at both companies side by side, Coca- Cola Co. long term debt is more than

PepsiCo Inc. However, Coca-Cola Inc. shareholder equity net value that was returned to the

shareholder was more than the net value PepsiCo. Inc. returned to its shareholders.

If we talk about the current ratio of the two companies, then Coca Cola has an increasing

trend of this particular ratio where in 2015 the current ratio was 1.24 and it increased to 1.28 in

2016. This indicates that for $1 current liability or short term debt obligations, current assets

available are $1.28. But in the case of Pepsi Co, the current ratio has decreased from 1.31 in

2015 to 1.28 in 2016 which is definitely the same and it can be assumed that the current ratio is

in a decreasing phase. Therefore, Pepsi Co should try to expand their current assets which would
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include cash reserves basically that would enhance the current ratio ultimately. As far as

inventory turnover is concerned, it basically measures as to how efficiently a company can

control its merchandise due to which it is important to have a high turn. Coca Colas inventory

turnover is quite low as compared to Pepsi Co which indicates that Pepsi Co has efficient

operations while Coca Cola has poor inventories management. It can also be an indication of

either a slow down in demand or over stocking of inventories.

References

Pepsi Co. Analysis of Debt. (2017). Retrieved from https://www.stock-analysis-

on.net/NYSE/Company/PepsiCo-Inc/Analysis/Debt

Ross, S. A., Westerfield, R. W., & Jordan, B. D. (2016). Fundamentals of Corporate

Finance (11th ed.). Retrieved from The University of Phoenix eBook Collection database.